‘Fixing SA Inc is about how the money is spent’
Economic reality will eventually call out the politics – Cannon Asset Managers chief
SOUTH Africa does not need more money – it should rather learn to apply its available resources more sensibly.
This was the sentiment shared by Cannon Asset Managers chief executive Adrian Saville at the 2019 Financial Intermediary Association Advice Summit held in Johannesburg last week.
His message to the assembled financial intermediaries was that economic reality would eventually call out the politics. This truism applies to global phenomena such as Brexit, the international trade war initiated by US President Donald Trump and South Africa’s lamentable economic performance during the “Zuma years”.
The domestic economy – capable of delivering annual gross domestic product (GDP) growth of 3.5 percent-plus at the time – was throttled by a decade of mismanagement and state capture to limp along at less than 1 percent growth today.
Saville was critical of economists’ obsession with 0 percent GDP growth as the reference point for a recession. He argued that South Africa enters recession territory as soon as annual GDP growth slips below population growth at about 1.5 percent.
“We have been in a per capita income recession for the past decade,” he added. The government’s reaction has been counter-intuitive. Instead of creating an environment conducive to investment and job creation, they have become “increasingly bureaucratic and administratively intense.”
The euphoria that accompanied Cyril Ramaphosa’s ascendancy to the presidency of the ANC and subsequently of the country is eroding due to the extent of the economic malaise.
To add to its woes, the country exhibits high levels of industrial concentration, with most sectors dominated by a few large competitor firms. These firms no longer create jobs; focusing instead on the application of capital to increase productivity. An unnerving consequence of this structural “flaw” is a poor income elasticity of only 0.06, meaning that for every 10 percent growth in the economy we create only 0.6 percent more jobs.
“Our current obsession with economic growth is a false hope,” said Saville. “South Africa’s miracle does not lie in fast growth; but in restructuring the economy.
“Not that our current growth performance was anything to crow about. The country was in a steady decline on most measures of growth, including GDP, income per capita and exports. We have a falling share of the world export market with export patterns by and large the same as 40 years ago.”
Instead of implementing unpopular turnaround plans, the government is dishing out billions more to inefficient firms, Saville says. Eskom will receive R49 billion for 2019 and an additional R56bn for 2020, while Denel (R1.8bn) and the SABC (R2.1bn) have also benefited from cash injections in the past month.
Of greater concern was the government’s desire to press ahead with an un-costed and probably unnecessary National Health Insurance scheme.
“Once again, the problem is not with the money, but with the implementation,” said Saville. “We have some of the best-funded education and healthcare solutions in the world (as measured by the percentage of GDP spent on each), yet our education and healthcare outcomes are disastrous.”
Redemption could lie in the Economic Policy Document recently published by Finance Minister Tito Mboweni.
Naysayers would probably counter this optimism on two points. First, the Economic Policy Document has not been accepted by either government or the ANC as an official policy position. And second the ideology-riddled predecessors such as Gear, ASGISA, the National Growth Plan and the National Development Plan exhibit a trend of increasingly optimistic “promises” offset by declining outcomes.
“I will make the pointed observation that (Ramaphosa) cannot fix (the economy) alone; he can only fix things with help from the private sector,” said Saville. “I have a strong, overwhelming sense that the economic reality is pulling our local politics to order.”